•On
Oct. 15, 2014, Time Warner announced the launch of a stand-alone, over-the-top,
HBO service in the United States.

•On
Oct. 16, 2014, CBS announced the launch of CBS All Access, a subscription
video-on-demand and live-streaming service that makes available both archived
and current CBS television network programming.

•Between
Oct. 27, 2014, and Jan. 14, 2015, Amazon introduced the Google Chromecast
competitor Fire TV Stick; announced the debut of three original television
series and 12 original television pilots; and signed Woody Allen to create his
first television series.

•Between
Oct. 29, 2014, and Jan. 7, 2015, Netflix made announcements regarding 10
original television series. On Jan. 20, 2015, the company announced it had
added a record 13 million new subscribers during the fourth quarter of 2014,
bringing its total subscriber base to 57.4 million.

•Between
Oct. 30 and Nov. 18, 2014, Hulu announced two original television series.

•On
Jan. 5, 2015, DISH announced the launch of Sling TV, a live, over-the-top
television service, including content from ESPN, Disney, TNT, TBS, Food
Network, HGTV, and the Cartoon Network.

New innovations
such as these have emerged to create a dynamically competitive video market, which
is a very different snapshot relative to the video market 25 years ago. Over
that span, the market share of cable providers has decreased from 95 percent to
55 percent. It is important that video policy reflect the ever-changing market
that sees new competitors and innovations every week.

It is also important to understand that the protection of intellectual property rights plays a pivotal role in the continuing evolution of the video marketplace.

Wednesday, January 28, 2015

Google Fiber announced
on Tuesday that it will be delivering its high-speed Internet service to four
more American cities - Atlanta, Charlotte, Nashville, and Raleigh-Durham, NC.
This is fantastic news considering Google Fiber has already entered several
American cities and is currently in discussion with several more. (See here
and here.)

Google Fiber has
helped enforce very strong intermodal competition within America’s dynamic
broadband market. Google’s emergence spurs investment from other ISPs in
regional areas (whether wireline or wireless) in order to prevent Google from
controlling an entire market.

By competing
with other ISPs on prices, investment, and innovation, Google’s entry into the
broadband market is very beneficial for consumers, provided that state and
local governments are not giving any special favors to Google that are not
also available for all other ISPs. Government favors and handouts,
even if in a benevolent attempt to connect residents to the Internet,
ultimately harm consumers because they often restrict competition to only the
ISPs that have been favored. It is most beneficial to consumers if governments “level
the playing field” by deregulating down, allowing for competitive markets,
lower prices, and higher quality service.

Tuesday, January 27, 2015

I’m a history buff by late night, not unlike some others who
spend most of their days involved with communications law and policy. Indeed,
one of the history buffs I have in mind has written a book about the special role the telegraph played
in winning the Civil War. Before this particular person came to occupy his
present high government office, I highly commended his book to you in this
piece, “Tom Wheeler, Historian at the FCC’s Helm.”

At the very end of the May 2013 piece, I concluded:

But it does not seem out of place to suggest that Mr.
Wheeler, a Lincoln scholar and someone who has observed closely the dramatic
changes in the increasingly competitive communications marketplace, may well
draw inspiration from Mr. Lincoln's injunction to jettison past dogmas, and to
think anew, and to act anew. Certainly the FCC could benefit from ridding
itself of outdated regulatory dogmas developed in a bygone monopolistic era,
and from thinking and acting anew.

Of course, history lends itself to different
interpretations. Understanding the past is not the same as solving an algebraic
equation.

Here are a just a few of my favorite short quotations
regarding understanding history or the past:

“The past is never
dead. It is not even past.” – William Faulkner

“History is indeed an
argument without end.” – Pieter Geyl

“The one duty we owe
to history is to rewrite it.” – Oscar Wilde

“To know nothing of
what happened before you were born is to remain ever a child.” -Cicero

Now, each of these quotations, in its own way, calls to mind,
at least for me, particular aspects of the decade-long fight concerning the
imposition of net neutrality mandates on Internet providers. I’ll let you
ponder them. I suspect that for many of you, thinking about each one – in the
context of the net neutrality fight – will cause you to nod your head, perhaps
even smile.

But here is another famous quote concerning history, perhaps
the most famous of all:

George Santayana, the philosopher, poet, essayist, and
novelist, said: “Those who cannot learn
from history are doomed to repeat it.”

I was especially reminded of Santayana’s admonition while
watching last week’s net neutrality hearing. Ranking House Communications
Subcommittee Member Frank Pallone asked NCTA’s Michael Powell – a former FCC
Chairman – how we should evaluate the argument that Title II will stifle
innovation and investment. In response, Mr. Powell turned to a bit of history
that, inexplicably, has been mostly absent from the net neutrality debate. Mr. Powell
said, in part: “[A] careful examination historically over periods of regulatory
intervention versus periods of light regulation will demonstrate a clear
pattern. In the wake of the 1992 Act when cable rates were regulated,
investment was depressed for several years until the prospect of the 1996 Act,
which deregulated those rates again, and [investment] soared.”

Among other things, the 1992 Cable Act imposed a new rate
regulation regime on cable operators. In fairly short order after the FCC began
to implement it, a fairly widespread consensus formed that the new cable
regulations were adversely impacting investment, service quality, and consumer
choice. Even Reed Hundt, the FCC Chairman at the time, and not one otherwise lacking
in pro-regulatory sentiment, quickly grew disillusioned with the new regulatory
regime. In his book, “You Say You Want a Revolution,” Mr. Hundt
acknowledged that whatever benefits consumers gained from the modest price
reductions were outweighed by “billions in foregone capital investment” by the
cable operators. By late 1994, Mr. Hundt agreed that the cable rate regulation
regime that had only recently been adopted in the name of consumer welfare
should be largely eliminated.

Tom Hazlett, a former FCC Chief Economist, now at Clemson
University, is widely recognized as one of the nation’s foremost authorities regarding
telecommunications economics, especially with regard to cable operators. Here
is what he had to say in his 2003 article, “The Irony of Regulated Competition in
Telecommunications,” published in the Columbia Science and Technology Law Review:

But cable rate regulation was
unsuccessful. Nominal rates were suppressed by the FCC; average household bills
in October 1994 were about 10 percent below where they would likely have been
in the absence of controls. But service quality suffered, as cable network
ratings plummeted and investment in system upgrades ground to a halt. The
Commission quickly reversed course in November of 1994, allowing generous rate
hikes under the “control” scheme. It was an explicit attempt to improve cable
operator incentives to add new channels, to pay higher licensing fees for
enhanced programming on existing networks, to expand physical infrastructure,
and to improve customer service.

Mr. Hazlett declared, presciently, that “[r]etail price
controls in cable offer more than an illustrative analogy; they connect
directly to the substance of the broadband debate.” At bottom, he concluded,
“rate regulation suppresses investment, deployment, and inter-modal
competition.”

In the late 1990s and early 2000s, this deregulatory view regarding
broadband policy became widely shared – and on a bipartisan basis. Indeed, it
was the Clinton Administration that early on articulated a policy against
subjecting the then-emerging broadband Internet providers to public
utility-style regulations.

In 1999, in opting not to require a public utility-style
“open access” regime for cable broadband, Clinton-appointee FCC Chairman William
Kennard declared:
"[T]he alternative is to go to the telephone world, a world that we are
trying to deregulate and just pick up this whole morass of regulation and dump
it wholesale on the cable pipe. That is not good for America."

I am surprised that there has not been more focus on the
adverse effects on investment, service quality, and consumer choice that followed
implementation of the 1992 Cable Act rate regulation regime because these
adverse effects were widely acknowledged. In the context of the present net
neutrality debate, the episode is worthy of more comment. (It won't do to
suggest that the proposed Title II public utility regime for Internet providers
is not primarily focused on rate regulation. Any such suggestion is wrong, as I
can easily show if need be. For now, I will simply point to the proposed ban on
“paid prioritization.” What is such a ban if not a form of rate regulation?)

Sadly, it now appears that the early bipartisan consensus
concerning the wisdom of that light-touch broadband policy has broken down. In
the words of Mr. Kennard: “This is not
good for America.”

And in the words of Santayana: “Those who cannot learn from history are doomed to repeat it.”

This is true even for historians of the telegraph – which
has long since been relegated to (telecom) history’s dustbin.

Friday, January 23, 2015

Earlier this
week, Florida Governor Rick Scott announced his plan to cut $470
million in cellphone and television taxes. The plan would decrease tax
rates on cellphones and television by 3.6 percent and would save the average Florida
family $43 a year. Currently, Florida residents
pay the fourth
highest wireless tax rate in the country when including federal, state, and
local taxes. Only New York, Washington, and Nebraska have higher wireless
tax rates.

This proposal
from Governor Scott is a step in the right direction towards incentivizing more
Florida residents to adopt Internet service. As I wrote in an October 2014 blog,
wireless taxes are very regressive because over 56 percent of all poor American
adults had only wireless service as
of December 2013. It is important that taxes on Internet access are as low
as possible in order to push prices to an affordable level so every willing
consumer can get online.

Wireless
networks are rapidly becoming the future of broadband throughout the United
States, but high tax rates slow down the pace of deployment of wireless
infrastructure. The reductions in the quantity of service demanded by consumers
decrease the incentive for providers to invest in infrastructure.The
transformation in wireless networks has been incredible over the past ten or
more years (2G, 3G, 4G), as more and more consumers have demanded higher speed services. For this progress to continue, more states should adopt similar plans to
Governor Scott’s and substantially decrease the rates of wireless taxes.

Rinehart used
investment data from a paper by Kevin Hassett and Robert Shapiro entitled “The Impact of Title II Regulation of Internet Providers On
Their Capital Investments,”which I blogged about here.
Among many of the Hassett and Shapiro’s findings, one was that Title II
regulations would decrease investment by $11.8 billion in 2019, the final year
of their estimation. Using a multiplier provided by the Bureau of Economic
Analysis, Rinehart calculated that an investment decline of $11.8 billion in
2019 would result in 174,233 fewer jobs than what would exist if Title II
regulations were not adopted. Rinehart also made the following clarification:

Since
the US has an extremely dynamic labor market and due to the very nature of
multipliers, investment could shift toward other industries, so this number
applies only to broadband employment. However, the forgone investment would
also come at the expense of highly technical careers, which would ultimately
limit positive spillovers like new companies in these evolving markets.

As
I mentioned in a blogin early January, the increased fees that would be required
from Title II regulations should depress investment by more than the amount Hassett
and Shapiro projected, because as the price of broadband increases, the amount
consumers demand decreases. This would disincentivize Internet Service
Providers from investing and could ultimately lead to even more jobs lost, and/or
jobs displaced into other areas of the economy.

If
a regulation (that does not correct for a market failure) affects employment
and wage levels in the market (whether up or down), the impact should be seen
as a negative effect on the economy. If these shifts in the labor market were a
positive market outcome, they would have occurred absent the regulation.

“Jobs!”
should not be a mere political slogan. Public officials, including regulators,
should focus on the impact of regulations on employment. Any public official
who says he or she wants a healthy labor market should be against Title II
reclassification because such regulations likely would have serious negative
impacts on many workers.

Job
reallocation is not a positive impact of regulations and this report by Will
Rinehart provides further evidence to the negative impacts of Title II
regulations on investment and employment.

Wednesday, January 21, 2015

Flight-sharing
is one of the latest services to emerge within the new “sharing economy.” Flytenow,
a flight-sharing company, connects passengers with pilots who have empty seats
on private flights for a fraction of the flights’ costs. Like Airbnb and Uber,
which connect travelers with shelters and passengers with drivers,
respectively, Flytenow can provide valuable services at the touch of a
smartphone.

Sharing services,
like these, provide additional consumer choice by disrupting traditional business
models, and the emergence and popularity of such services has signaled to
entrepreneurs that additional innovations are in demand. The new sharing
economy services lead to increases in productivity for the overall economy and
cost savings for consumers. For example, according to an Airbnb report
on its impact in NYC, the company’s low prices have led to guests staying longer
than they would have in a hotel. The average NYC Airbnb guest stays 6.4 nights,
while the average NYC hotel guest stays 3.9 nights. These longer stays within
the five boroughs have led to an additional $632 million in economic activity in
one year in NYC alone.

Airbnb and Uber
have come under regulatory scrutiny from many state and local governments (see here).
Now, Flytenow is currently being regulated at the Federal level. According the Wall
Street Journal, Flytenow is challenging the Federal Aviation Administration
(FAA) in Federal court over the agency’s effective ban on its flight-sharing
services.

Flytenow argues
that it is not breaking any Federal laws or regulations because the FAA has
always allowed private pilots to advertise flights and attract passengers as a
means to cut down on expenses. But instead of using bulletin boards or
newspapers, which apparently was legal in the past, users of Flytenow are
advertising through the Internet. The FAA says that flight-sharing companies,
such as Flytenow and Airpoolers, are subject to the regulatory standards that
apply to commercial flights.

But Flytenow specifically
sets forth the FAA regulation on its website: “Federal Aviation
Administration regulations prohibit a pilot from accepting compensation from
passengers. We help you split the costs, but you are not allowed to compensate
the pilot further than that.” Flytenow argues that this cost-splitting
operation makes flight-sharing services completely legal under Federal law.

It is
understandable for regulators and government agencies to be cautious with
regard to emerging technologies in order to protect consumers from certain
identifiable risks. But preemptive
regulations often end up harming consumers by eliminating valuable services. As
discussed in a Perspectives from FSF
Scholars entitled “The
Sharing Economy: A Positive Shared Vision for the Future:”

If purveyors of sharing applications engage in
harmful, unhealthy, or unsafe activities, competition is probably the most
important regulatory mechanism to address any real problems. In competitive
markets, poor consumer satisfaction generally means that a company will lose
market share, or even fall out of the market. If a company is not operating
safely or if it is putting its users in unhealthy conditions, a competitive
market allows for unsatisfied consumers to choose alternatives.

It should not be
unreasonable to think that flight-sharing services could operate in a similar
manner to ride-sharing and shelter-sharing services. Hosts, drivers, and pilots
should be able to price their services based on supply and demand. In the “The
Sharing Economy: A Positive Shared Vision for the Future,” Free State Foundation President Randolph May and I
suggested the following:

If the laws or regulations applicable to the
existing incumbent businesses no longer make sense today, they should be
changed. It always harms consumers when public policymakers attempt to “level
the playing field” by subjecting entities to regulatory restrictions that are
not needed. The proper way to respond to “level the playing field” claims is to
remove unnecessary regulations wherever they apply, not to expand them to new
entities.

It is important
for regulators to consider the costs and benefits of sharing services before
restricting or outright prohibiting them. Preemptive regulations often lead to
less consumer welfare than light-touch regulatory regimes that promote market-driven
solutions that satisfy consumer demand while still providing redress for
identifiable consumer hams.

As FSF Scholars discussed in their comments
to the FCC back in August, the FCC lacks the legal authority to preempt state
laws restricting municipal broadband networks. These comments and additional FSF
blogs (here
and here)
have outlined why municipal broadband inherently creates an anticompetitive
market, because municipalities do not operate through profit and loss, placing
large burdens onto taxpayers.

Increasing high-speed Internet access throughout
the country is an admirable goal. But instead of the government providing
access, the focus of the government should be to reduce regulatory barriers at
all levels to pave the way for private providers to increase high-speed
broadband access.

Tuesday, January 13, 2015

In
a recent post, Susan Crawford
once again is railing against so-called “zero-rating” broadband plans which
allow consumers to access certain websites on a free or discounted basis.
Although these “zero-rating” and “sponsored data” plans have proven popular
with consumers, Professor Crawford claims that they are actually bad for
consumers. And she wants them banned pursuant to her understanding of what “net
neutrality” regulation should require.

Under
Professor Crawford’s vision of the way the Internet should work – or, I should
say be “modeled” or “planned” or “mandated” by government regulators – all broadband Internet providers’ plans
should be required to provide access to all
subscribers to all websites at all times. In other words, Internet
providers should not be allowed to offer, as T-Mobile and Sprint currently
offer, plans that provide wireless consumers access to a whole bunch of popular
music sites without the incurrence of data charges or access to a limited
number of popular websites (such as Facebook and Twitter) at deeply discounted
rates. And AT&T should not be allowed to offer its “sponsored data” plan under
which a content purveyor, say, ESPN, rather than the consumer, is billed for
data charges that otherwise would be incurred by the consumer visiting the
website.

Professor
Crawford claims these “zero-rating” and “sponsored data” plans are
“pernicious,” “dangerous,” and “malignant.” Frankly, I’m glad she thinks so. Because
her advocacy on this point just serves to illustrate the real pitfalls of net
neutrality advocacy run amok.

Or,
to put it another way, Professor Crawford’s opposition to any form of
“zero-rating” serves to illustrate how, in her view, the absolutist objective
of total access uniformity must prevail over any other business model that
consumers might find attractive, however slightly such model may diverge from
Professor Crawford’s notion of total access uniformity.

Or
to put it still one more way: Professor Crawford is cocksure she knows what’s best
for consumers regardless of whether they might disagree.

We
spilled considerable ink last year – I still like the ring of that as I “hunt
and peck” away – explaining why net neutrality advocates’ argument that the
government should ban “zero-rating” or “sponsored data” plans should be
rejected. I don’t want to repeat all of those arguments here, so below you will
find links to seven different pieces that address the subject in greater or
lesser fashion. I especially call your attention to the “It’s the Consumer, Stupid! – Part II” and “Net Neutrality v. Consumers.”

“I maintain that the vast majority of
consumers, if asked the question in a fair way, would say they are pleased with
the additional choices they now have available under the Sprint and T-Mobile
plans. I suspect they would say they are not aware that self-designated
consumer representatives have opposed these very plans in their name.”

Friday, January 09, 2015

House Judiciary Committee Chairman Bob Goodlatte (R-Va.), Congresswoman Anna Eshoo (D-Calif.), Subcommittee on Regulatory Reform, Commercial and Antitrust Law Chairman Tom Marino (R-Pa.), Congressman Steve Chabot (R-Ohio), and Congressman Steve Cohen (D-Tenn.) have introduced H.R. 235, the Permanent Internet Tax Freedom Act (PITFA). Last Congress, the House of Representatives passed PITFA by voice vote.While the Congress extended the Internet tax moratorium last year, a permanent ban on should Internet access taxes should be adopted. The introduction of H.R. 235 is a good first step.This is a piece of legislation that will be good for the economy that should be accomplished on a bipartisan basis.

Thursday, January 08, 2015

I don’t speak much French. Two days ago I probably would
have bungled, “Je Suis Charlie.”

But now I know “I am Charlie.”

That is to say that I now not only know how to say “I am
Charlie” in French, I know “I am Charlie.”

Since the founding of the Free State Foundation in 2006, we
have proclaimed at the very top of our website that our purpose is to promote
understanding of “free market, limited government, rule of law principles at
the federal level and in Maryland” and to protect “individual and economic
liberty.”

On a day-to-day basis, our work primarily involves promoting
reform of communications law and policy in free market-oriented ways; defending
the First Amendment rights of U.S. media companies and other speakers; supporting
the intellectual property rights of authors and other creators of intellectual
property; promoting a global Internet governance model that is free from
government interference and control; and, occasionally, urging more efficient,
less burdensome government in Maryland. These are important issues all.

But today it is most important to take a stand on what is of
utmost importance to the survival of the Western values embodied within the
“rule of law” principle we proclaim. It ought to go without saying that freedom
of expression is at the very core of the rule of law principles we proclaim at
the Free State Foundation. That is why, over the years since our founding, we
have devoted significant attention to promoting an understanding of the First
Amendment in our own constitutional context.

So, for me, when I say today “Je Suis Charlie,” I mean to
say forthrightly that there no longer should be equivocation about the threat the
U.S., France, and others confront from radical Islamic terrorists who are
waging war on core values that we profess to hold dear. It is time to stop
sending mixed messages that can be interpreted as condoning the silencing of
speakers in the name of not offending those who profess to be offended. Because
the hard, cold truth is that there is no easy off-ramp on that road counseling
self-censorship that doesn’t involve the ultimate surrender of freedom of
expression and the rule of law.

Tuesday, January 06, 2015

I am pleased to congratulate Free State
Foundation Distinguished Adjunct Senior Fellow Deborah Taylor Tate on her appointment
by the Tennessee Supreme Court
to be Director of the Administrative Office of the Courts in Tennessee. Debi has
held many leadership positions during her extraordinary career. Of course, she
served as a distinguished FCC Commissioner. After leaving the FCC, Debi was
appointed a Special Envoy to the International Telecommunications Union and
Laureate for her work with child online protection issues. Moreover, Debi has
served the state of Tennessee in several capacities, including working with
both of Tennessee’s present U.S. Senators, Lamar Alexander and Bob Corker.

The Tennessee Supreme Court’s press release lists
many of Debi’s past positions, along with her many honors and distinctions.

I am delighted that Debi will be able
to continue in her position as a Distinguished Adjunct Senior Fellow with the Free State Foundation. I am grateful for Debi’s
many contributions to the work of the Free State Foundation, and I look forward
to her continuing contributions in the future.

This new undertaking by Debi is just a continuation
of her lifelong commitment and dedication to serve the people of her native state
of Tennessee and her country. I am proud that one of the ways Debi has chosen
to serve – and to continue her longstanding commitment to establishing sound
communications policy – is through her affiliation with FSF.